How Coronavirus will affect the Real Estate Market in 2020
Three weeks after its first coronavirus infection was discovered, the NY City region reached an alarming levels on Sunday: It now accounts for roughly 5 percent of the world’s confirmed cases, making it the hot spot of the pandemic and increasing pressure on city officials to enforce more drastic measures. The spread of the virus has officially been declared a pestilence by the WHO. It’s already claimed almost 8,000 lives around the world. Major events and conferences are postponed or canceled, corporations are telling employees to work from their homes, and thus the securities market has dropped almost 30 percent since February 24.
The CDC has recommended social distancing as a precaution for getting the virus, but if you’re already within the marketplace looking for a new home, all the uncertainty may have you ever worried about the housing market.
Will it suffer a swoon similar to Wall Street?
What will happen after the interest rates plunging to almost 0%
There are almost 30,000 cases currently confirmed within US, which number is nearly guaranteed to rise. The countries where the virus has hit at most—namely China, where quite 81,000 cases are documented—are global manufacturing hubs that major companies use as suppliers. China’s economy declined as a result of the virus, and as long as it stays that way, the more US economy will be hurt by that.
Very low houses on the market and very low mortgage rates would usually trigger a very competitive home buying season. While recessions usually have only a low effect on the housing market in US, the coronavirus is making life and markets difficult to predict.
Historically low inventory and low mortgage rates would normally set the path for a highly competitive home-buying year. While recessions usually have a minor effect on the housing market, the coronavirus is making life and markets harder than ever.
Zillow released a study on housing during pandemics in previous years and concluded that while home sales plunged dramatically during the pandemic, home prices stayed about the identical or suffered a little decrease. This makes sense because it’s harder for prices to vary when there are no transactions. In short, previous situations lie right now have simply put the housing market on hold. Furthermore, the goverment has announced a moratorium on foreclosures on any mortgage-backed by Freddie Mac, Fannie Mae, or the Federal Housing Administration (FHA) which might last a minimum until April.
This is a very important step that will keep the bottom from falling out of the house market because of fast rising foreclosures like it happened in 2008.
Coronavirus already pushing mortgage rates lower
On Sunday, the Fed announced a 2nd emergency rate decrease since the outbreak, bringing the yield on Treasury bonds to almost 0%
Furthermore, the securities market crash can have a bearing on interest rates, too. When investors start thinking the securities market is solely too risky—like right now—they sell their stocks and buy bonds. The increased demand pushes the price of bonds to go up. The upper the price of bonds, the lower the interest payment—called the yield—is relative to the price. When bond yields are lower, mortgage rates are going down too.
However, the New York Times reported that this relationship between stock market and bonds has not held as firm as it has historically, most likely in part because interest rates were already way too low. Rates are down to around 3.7 percent, and that opens the question of how low mortgage lenders are willing to go, regardless of whether the Federal Reserve reduce its rate again.
The housing market currently is, in a word, tight.
Consider Seattle, where home prices have risen dramatically as it has become one of the country’s leading tech hubs.
And while the nation as a whole is suffering from housing shortages, the city of Seattle’s available houses for sale dropped a huge 27.6 percent year-over-year in the month of January. The housing market in other states isn’t much better off: supply is at near-record lows in the entire country, and demand is close to an all-time high. This combined together means home prices are also near all-time highs in most cities as many potential buyers are bidding on a limited supply of homes on the market.
In 2019, the number of homes on the market dropped very low, in particular on the West Coast. Compared to the year before, some cities experienced double-digit % decline in homes for sale on the market.
But the supply spike was for a shot time. “It’s actually went down near record lows in terms of the amount of available homes on the market in the country as a whole. On the demand side, some indicators suggest there will be many buyers in the market looking.
Low unemployment, solid wage growth, and low mortgage rates are all signals of high demand.
It’s hard not to remember the recent history, but while the 2008 financial crisis saw both the housing and stock markets declined in tandem, this was an aberration in so many ways; the housing market crash was ultimately the reason of the stock market crash. Typically the Real Estate market is not tied to move with the stock market, because people don’t buy houses only for an investment purposes. Home is a basic need, and the decision to buy one is usually driven by entering a new stage of life. A just married couple is moving in together and it will start looking for a house. A family is having a second or third child and needs more space for the baby so they buy a bigger house. Empty nesters have more space than they need after their kids go to college, so they start looking for a smaller home. A stock market correction doesn’t change these circumstances for people. Even in a real recessions, the housing market is incredibly stable. In some cases recessions, home prices have actually gone up.
Another important part that everyone should of think about is that when the stock market declines, investors are looking for safer marketplaces to park their money, if the bond market goes up. The stock market drop can have a very positive effect on the real estate market.
Roofstock is a platform many investors use to buy and sell single-family rental/investment properties, has seen huge increase in the web traffic since the outbreak of the coronavirus, as investors from all around the world looking for good opportunities.
Are construction supply lines being disrupted by coronavirus?
The short answer is yes.
Most of the materials needed to build a house in US are coming from China, according to the NAHB, and of course the finished products like bathtubs, faucets, appliances, and etc. This will delay home construction with months before it comes back to normal.
Since 2008 financial crisis, home building has struggled to keep up with demand because of the high cost of construction, lack of available land, and a qualified construction labor shortage.
The home builder companies confidence has increased lately, according to the NAHB. This signals that construction companies are more inclined to start building homes with full speed again. With a new home sales—mostly dependent on the quantity of built homes—went up dramatically in recent months, as have construction starts. But when supply lines are disrupted as of right now, it could disrupt of home building again and contribute to inventory declined again. “Low-interest rates help support demand, and consumer confidence in the coming months will be key, but the virus definitely hurting some of the longer-term issues on the supply line.
How the home buyers should approach the incoming season?
The market conditions were set for the spring is very competitive housing market.
Inventory is low, demand was high, and mortgage rates are low.
If you already own a home and you’ve closed on it with the higher rates a few years back, you might consider refinancing it with rates so low now; other homeowners are already jumping at the chance.
It’s worth taking recent housing market history into consideration. 2 years ago, during a similar conditions in the market and we were entering “the most competitive housing market in recent history.” That market didn’t materialize. Instead, home prices hit an affordability bottom that kept many buyers out of the market. Many sellers who listed their homes in hopes of taking advantage of the favorable conditions saw their homes sitting on the market for way longer than usual, leading to an supply of homes pile-up not seen since the 2008 crises. Home prices are still very high now. If the same conditions existed and home prices were a little undervalued, it would likely create sudden home-price appreciation. But prices like those are already potentially maximized, it remains to be seen whether current market conditions cause prices to break even higher or hit a ceiling. The unknown part in the housing market is a coronavirus. If its impact is prolonged and triger even a minor recession, it could put a stop on demand—which would actually be welcome for buyers in, some competitive markets. Still, don’t expect home prices to drop. It would likely just slow down the speed they are rising.
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Source: Curbed